Patrick Connolly of AWD Chase de Vere reviews Allianz's latest fund aiming for long-term capital growth in Renminbi terms through a mixed bag of fixed income assets.

First published:
What Investment

Date of publication:
1 July 2011


The Allianz RCM Renminbi Fixed Income fund will aim for long-term capital growth in renminbi terms through investment in a mixed bag of fixed income assets.

The fund’s portfolio will include renminbi-denominated government, quasi-government, supranational, and corporate bonds.

It will also invest in renminbi deposits and certificates of deposit and has the option to invest in convertible bonds.

Minimum investment:
N/A

Annual management fee:
0.9 per cent

Initial charge:
Up to 3 per cent

Contact:
www.allianzglobalinvestors.co.uk

Patrick Connolly says:
We are seeing a growing number of new fixed interest funds trying to capitalise from the opportunities in the emerging markets and increasingly putting emphasis on exposure to local currencies, which many believe will out-perform Western currencies in the months and years ahead.

This fund gives investors the opportunity to benefit from the strength of the renminbi, which is the currency of China.

The value of the renminbi has been held artificially low by the Chinese authorities as they have focused on making their exports more competitive and aiding economic growth within China.

There is an expectation that the renminbi will strengthen over time and that will be positive for this fund, which expects to make most of its gains from currency movements.

To emphasise this point, and the defensive strategy being adopted by the fund, the manager will initially invest 70 per cent of the portfolio in Chinese deposit accounts yielding between 1 per cent and 1.5 per cent.

However, this weighting will reduce to 30 per cent over time with a corresponding increase in fixed interest holdings.

While this sounds like an appealing investment strategy it should be remembered that currency movements are notoriously difficult to predict.

There are other factors which could impact on these including any actions taken by the Chinese authorities and the Chinese economy potentially being near the top of its interest rate cycle while Western interest rates should only go up from here, which could strengthen their currencies.

Allianz do have significant resources in Asia Pacific, the fund should soon be available on major life company and fund supermarket platforms, a Sterling share class is being launched and the charges are competitive.

This fund could therefore have its attractions. However, despite the defensive stance being adopted by the manager, it would be wrong to assume that the fund is a direct substitute for more cautious fixed interest holdings that an investor may hold, such as UK investment grade bond funds.

Rating:
2.5 out of 5